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Wage Differentials, Discrimination and Inequality: A Cautionary Note on the Juhn, Murphy and Pierce Decomposition Method

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  • Yun, Myeong-Su

    () (Inha University)

Abstract

This paper shows how difficult it is to study the roles of discrimination and unobserved skills when studying changes in racial and gender wage gaps over time by examining merits and shortcomings of a popular decomposition method by Juhn, Murphy and Pierce (1991). The JMP method shows that wage dispersion can offer a compelling explanation of the wage gap. However, JMP have to rely on a few strong assumptions in order to derive their decomposition equation which introduces wage inequality as the price of unobserved skills (the standard deviation of the residuals) into their decomposition equation.

Suggested Citation

  • Yun, Myeong-Su, 2007. "Wage Differentials, Discrimination and Inequality: A Cautionary Note on the Juhn, Murphy and Pierce Decomposition Method," IZA Discussion Papers 2937, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2937
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    References listed on IDEAS

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    1. Even, William E. & Macpherson, David A., 1990. "Plant size and the decline of unionism," Economics Letters, Elsevier, vol. 32(4), pages 393-398, April.
    2. P. A. Riach & J. Rich, 2002. "Field Experiments of Discrimination in the Market Place," Economic Journal, Royal Economic Society, vol. 112(483), pages 480-518, November.
    3. Ashenfelter, Orley & Oaxaca, Ronald, 1987. "The Economics of Discrimination: Economists Enter the Courtroom," American Economic Review, American Economic Association, vol. 77(2), pages 321-325, May.
    4. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
    5. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
    6. James J. Heckman, 1998. "Detecting Discrimination," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 101-116, Spring.
    7. Yun, Myeong-Su, 2004. "Decomposing differences in the first moment," Economics Letters, Elsevier, vol. 82(2), pages 275-280, February.
    8. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    9. Suen, Wing, 1997. "Decomposing Wage Residuals: Unmeasured Skill or Statistical Artifact?," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 555-566, July.
    10. Smith, James P & Welch, Finis R, 1989. "Black Economic Progress after Myrdal," Journal of Economic Literature, American Economic Association, vol. 27(2), pages 519-564, June.
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    Cited by:

    1. Eva Fransen & Janneke Plantenga & Jan Dirk Vlasblom, 2011. "Why do women still earn less than men? Decomposing the Dutch gender pay gap, 1996-2006," Post-Print hal-00719069, HAL.
    2. Solomon W. Polachek & Jun Xiang, 2009. "The Gender Pay Gap across Countries: A Human Capital Approach," SOEPpapers on Multidisciplinary Panel Data Research 227, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Hipólito Simón, 2012. "The gender gap in earnings: an international comparison with European matched employer--employee data," Applied Economics, Taylor & Francis Journals, vol. 44(15), pages 1985-1999, May.
    4. Luis Armando Galvis, 2010. "Diferenciales salariales por género y región en Colombia: una aproximación con regresión por cuantiles," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, November.
    5. Stijn Broecke & Glenda Quintini & Marieke Vandeweyer, 2018. "Wage Inequality and Cognitive Skills: Re-Opening the Debate," NBER Chapters,in: Education, Skills, and Technical Change: Implications for Future US GDP Growth National Bureau of Economic Research, Inc.
    6. Joanna Tyrowicz & Lucas van der Velde & Irene van Staveren, 2017. "Identifying Age Penalty in Women's Wages: New Method and Evidence from Germany 1984-2014," SOEPpapers on Multidisciplinary Panel Data Research 956, DIW Berlin, The German Socio-Economic Panel (SOEP).
    7. Cho, Donghun & Cho, Joonmo & Song, Bohwa, 2010. "An empirical analysis of the gender earnings gap between the public and private sectors in Korea: A comparative study with the US," Journal of the Japanese and International Economies, Elsevier, vol. 24(3), pages 441-456, September.
    8. Essama-Nssah, B., 2012. "Identification of sources of variation in poverty outcomes," Policy Research Working Paper Series 5954, The World Bank.

    More about this item

    Keywords

    wage differentials; decomposition analysis; inequality; discrimination;

    JEL classification:

    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General
    • D30 - Microeconomics - - Distribution - - - General

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